Wendy’s subsidiary may not deduct interest on intragroup loan, says Canadian court

The Tax Court of Canada has concluded that TDL Group, a Canadian subsidiary of Wendy’s International Inc., the US restaurant chain, may not deduct $10 million (7.8 million USD) interest on loans from its parent in 2002. TDL used the loan to acquire additional shares of its wholly owned US subsidiary, Tim Donut US Limited, Inc., which then lent the funds interest-free back to Wendy’s.

In its March 6 decision, the Court upheld the Canada Revenue Agency’s denial of a deduction on the borrowing, concluding that that TDL had no “reasonable expectation of earning non-exempt income of any kind, directly or indirectly, at the time of its purchase of additional shares in Tim’s.”

Moreover, the Court went on to say that the evidence “clearly and unambiguously only points to the sole purpose of the borrowed funds as being to facilitate an interest free loan to Wendy’s while creating an interest deduction for the Appellant.”

See:

• The TDL Group v. The Queen, 2015 TCC 60